TRIS Rating Co., Ltd. has assigned the company rating of Thitikorn PLC (TK) at “BBB+” with “stable” outlook. The rating reflects TK’s strong market position as the leader in the motorcycle hire purchase business, its experienced management team, extensive branch network, and solid capitalization. However, the sub-prime nature of its target customers, a less favorable business environment and an uncertain economic situation which could lead to difficulties in expanding loan portfolio, more intense competition, and higher non-performing loans (NPLs) may potentially suppress the company’s profitability.
The “stable” outlook is based on the expectation that TK’s experienced management team and extensive branch network will enable the company to maintain its leading market position and continuously expand its motorcycle loans. TK is also expected to efficiently manage its asset quality.
TRIS Rating reported that with experienced management team and strong relationship with dealers, TK has been able to maintain its leading position in the motorcycle hire purchase business for more than 20 consecutive years with over 30% market share in terms of new accounts in the Bangkok Metropolitan Area (BMA). The company acquired two subsidiaries from its major shareholders: C.V.A. Co., Ltd. (CVA) in 1995 and Chayaphak Co., Ltd. (CYP) in 2003. TK’s capital base has been strengthened after recapitalizing by increasing paid-up capital and then listing on the Stock Exchange of Thailand (SET) in October 2003. The
loan portfolio has increased steadily from Bt4,284 million in 2003 to Bt5,631 million at the end of June 2006. By mid-2006, motorcycle hire purchase loans, the main business of TK, accounted for 78% of total outstanding loans.
TRIS Rating said, TK’s outstanding motorcycle loans rose continuously from Bt2,800 million in 2003 to Bt4,375 million at the end of June 2006. The growth is primarily driven by expansion to provincial areas through new branches and the introduction of low-priced motorcycle models, which enable low- to middle-income customers to afford motorcycles more easily. TK’s performance took a slight setback recently when the economy turned sluggish and TK’s delinquency ratio began to rise. Aside from the weaker performance of the motorcycle segment, TK’s overall asset quality was tarnished from the rise in the NPL ratio (overdue more than 3 months) of its automobile loans. Price competition in used car hire purchase loans is more intense as major operators have entered the used car loan business in order to gain higher yields. Therefore, TK, has slowed its lower-yield automobile hire purchase business and mostly focuses on the high yields from motorcycle loans. TK’s outstanding automobile loans fell from Bt1,483 million in 2003 to Bt1,256 million at the end of June 2006. The shrinkage of outstanding automobile loans, accounted for 22% of total loans, comprised with the deteriorating quality of outstanding automobile loans caused the overall NPL ratio to increase from 8.6% in 2003 to 9.3% at the end of June 2006. Though the motorcycle hire purchase is a high return business, it is also a high risk business; that is why TK implements a conservative allowance policy. The allowance for motorcycle loans covered 132% of TK’s motorcycle NPLs at the end of June 2006.
An increasing number of repossessed motorcycles as a result of higher NPLs coupled with more affordable prices for new motorcycle models precipitated an oversupply. Prices of used motorcycles have fallen. This environment resulted in higher losses from sales of repossessed motorcycles. Higher NPLs, losses from sales of repossessed assets, as well as investment and operating costs to open new branches in 2004 and 2005 have negatively impacted the company’s profitability. TK’s return on average assets ratio fell from 11.1% in 2003 to 8.9% in 2004 and 6.2% in 2005. Although its profitability fell, it is considered high when compared with other financial services providers.
TRIS Rating said, TK owns 61 branches covering 32 provinces in all parts of Thailand. The branch network has enhanced TK’s competitiveness over other major operators who focus primarily on the BMA. With new motorcycle loans from provincial areas representing about 40% of total new motorcycle loans, TK has diversified its income sources to other geographic markets. In 2003, the company recapitalized by increasing paid-up capital from Bt70 million to Bt500 million. Including the share premium received from the favorable stock market environment in 2003, the capital base has been strengthened significantly. The shareholders’ equity to total assets ratio significantly rose from 12.9% in 2002 to 42.5% in 2003 but slightly decreased to 38.4% at the end of June 2006 as the loan portfolio grew faster than the scheduled repayment of its receivables. -- End
Thitikorn PLC (TK)
Company Rating: BBB+
Rating Outlook: Stable
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
The “stable” outlook is based on the expectation that TK’s experienced management team and extensive branch network will enable the company to maintain its leading market position and continuously expand its motorcycle loans. TK is also expected to efficiently manage its asset quality.
TRIS Rating reported that with experienced management team and strong relationship with dealers, TK has been able to maintain its leading position in the motorcycle hire purchase business for more than 20 consecutive years with over 30% market share in terms of new accounts in the Bangkok Metropolitan Area (BMA). The company acquired two subsidiaries from its major shareholders: C.V.A. Co., Ltd. (CVA) in 1995 and Chayaphak Co., Ltd. (CYP) in 2003. TK’s capital base has been strengthened after recapitalizing by increasing paid-up capital and then listing on the Stock Exchange of Thailand (SET) in October 2003. The
loan portfolio has increased steadily from Bt4,284 million in 2003 to Bt5,631 million at the end of June 2006. By mid-2006, motorcycle hire purchase loans, the main business of TK, accounted for 78% of total outstanding loans.
TRIS Rating said, TK’s outstanding motorcycle loans rose continuously from Bt2,800 million in 2003 to Bt4,375 million at the end of June 2006. The growth is primarily driven by expansion to provincial areas through new branches and the introduction of low-priced motorcycle models, which enable low- to middle-income customers to afford motorcycles more easily. TK’s performance took a slight setback recently when the economy turned sluggish and TK’s delinquency ratio began to rise. Aside from the weaker performance of the motorcycle segment, TK’s overall asset quality was tarnished from the rise in the NPL ratio (overdue more than 3 months) of its automobile loans. Price competition in used car hire purchase loans is more intense as major operators have entered the used car loan business in order to gain higher yields. Therefore, TK, has slowed its lower-yield automobile hire purchase business and mostly focuses on the high yields from motorcycle loans. TK’s outstanding automobile loans fell from Bt1,483 million in 2003 to Bt1,256 million at the end of June 2006. The shrinkage of outstanding automobile loans, accounted for 22% of total loans, comprised with the deteriorating quality of outstanding automobile loans caused the overall NPL ratio to increase from 8.6% in 2003 to 9.3% at the end of June 2006. Though the motorcycle hire purchase is a high return business, it is also a high risk business; that is why TK implements a conservative allowance policy. The allowance for motorcycle loans covered 132% of TK’s motorcycle NPLs at the end of June 2006.
An increasing number of repossessed motorcycles as a result of higher NPLs coupled with more affordable prices for new motorcycle models precipitated an oversupply. Prices of used motorcycles have fallen. This environment resulted in higher losses from sales of repossessed motorcycles. Higher NPLs, losses from sales of repossessed assets, as well as investment and operating costs to open new branches in 2004 and 2005 have negatively impacted the company’s profitability. TK’s return on average assets ratio fell from 11.1% in 2003 to 8.9% in 2004 and 6.2% in 2005. Although its profitability fell, it is considered high when compared with other financial services providers.
TRIS Rating said, TK owns 61 branches covering 32 provinces in all parts of Thailand. The branch network has enhanced TK’s competitiveness over other major operators who focus primarily on the BMA. With new motorcycle loans from provincial areas representing about 40% of total new motorcycle loans, TK has diversified its income sources to other geographic markets. In 2003, the company recapitalized by increasing paid-up capital from Bt70 million to Bt500 million. Including the share premium received from the favorable stock market environment in 2003, the capital base has been strengthened significantly. The shareholders’ equity to total assets ratio significantly rose from 12.9% in 2002 to 42.5% in 2003 but slightly decreased to 38.4% at the end of June 2006 as the loan portfolio grew faster than the scheduled repayment of its receivables. -- End
Thitikorn PLC (TK)
Company Rating: BBB+
Rating Outlook: Stable
-----------------------------------------------------------------------
Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.